If you’re interested in purchasing a property, then you should know about the basics of home equity. No matter your level of knowledge, mortgage lenders and financial advisors are here to help you.
What are the basics of home equity?
Firstly, let’s get down to the basics. In short, home equity is the value of your property minus the amount you owe on your mortgage. Let’s say you have a property that is worth $300,000 and you owe $200,000 on your mortgage. The difference between these amounts is $100,000, which is your home equity amount.
Your home equity amount can also increase in a couple of ways. It can go up while you pay down your mortgage, and it can increase alongside the increase of your property’s value.
Can you borrow more funds?
You can borrow funds that are secured against your home equity amount as well. The interest rates on these types of loans can be lower compared to other loans. However, it is important to note that not all banks offer options on home equity. Therefore, make sure to first either visit your financial institution’s website or ask your bank about what options are available to you.
If your bank does offer home equity financing options, then you may go through an approval process. This would occur before you’re allowed to borrow against your home equity. If you receive approval, then the lender may put the full amount into your account.
What is a HELOC?
Don’t forget about the option of getting a home equity line of credit (HELOC). This functions similar to a typical line of credit, as you can borrow funds up to a certain limit. With a HELOC, which is secured against your property, you can take out funds when you need them, pay it back, and borrow funds again.
In terms of the interest rates on a HELOC, they can vary as the market for it shifts. Fees may also be involved, and they pertain to, for example, legal fees, title insurance costs, appraisal fees, and title search costs.
There are different types of HELOC as well. While one of them involves being combined with a mortgage, the other is a stand-alone product. A financial institution may offer a HELOC that is combined with a mortgage, and, at times, it can be called a “readvanceable mortgage.” As for the other option, it can be obtained with a lender that offers it, and it’s a revolving credit product that isn’t related to your mortgage.